Bowling Alone, Bowling Together: Is Social Capital Priced in Bank Loans?

37 Pages Posted: 23 Jun 2015 Last revised: 17 Jan 2018

See all articles by C.S. Agnes Cheng

C.S. Agnes Cheng

Hong Kong Polytechnic University - School of Accounting and Finance

Jing Wang

Vanderbilt University - Owen Graduate School of Management

Ning Zhang

Queen's University, Smith School of Business

Sha Zhao

Oakland University - Department of Accounting and Finance

Date Written: January 16, 2017

Abstract

We investigate whether societal-level social capital enjoyed by firms affects their cost of bank loans. Employing a county-level measure of societal-level social capital, we find that firms with higher social capital are associated with lower loan spreads and the effect is robust after controlling for measures of financial reporting quality and management characteristics. We also show that the effect of social capital is more pronounced for firms that have no previous relation with the lenders and firms that are geographically far away from the lenders. Finally, we utilize two exogenous shocks that significantly change societal-level social capital to identify the effect of social capital on bank loans. Our findings contribute to the rising literature on the benefits of societal-level social capital.

Keywords: Social Capital, Cost of Bank Loans

JEL Classification: P34

Suggested Citation

Cheng, C.S. Agnes and Wang, Jing and Zhang, Ning and Zhao, Sha, Bowling Alone, Bowling Together: Is Social Capital Priced in Bank Loans? (January 16, 2017). Journal of Accounting, Auditing and Finance, 32(4), 449-479. Available at SSRN: https://ssrn.com/abstract=2616766 or http://dx.doi.org/10.2139/ssrn.2616766

C.S. Agnes Cheng

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

M715, Li Ka Shing Tower
Hung Hom, Kowloon, Kowloon
Hong Kong

Jing Wang

Vanderbilt University - Owen Graduate School of Management

401 21st Avenue South
Nashville, TN 37203
United States

Ning Zhang (Contact Author)

Queen's University, Smith School of Business ( email )

Kingston, Ontario K7L 3N6
Canada

Sha Zhao

Oakland University - Department of Accounting and Finance ( email )

339 Elliott Hall
275 Varner Drive
Rochester, MI Michigan 48309-4401
United States

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